CH: Producer and Import Price Index

Wed Sep 13 02:15:00 CDT 2017

Consensus Actual Previous
M/M % change 0.2% 0.3% 0.0%
Y/Y % change 0.4% 0.6% -0.1%

The combined producer and import price index rose 0.3 percent on the month in August, its first increase since March. As a result, the annual inflation rate climbed fully 0.7 percentage points to 0.6 percent.

However, August's monthly spurt was wholly attributable to import prices which jumped 1.1 percent and now stand 2.7 percent higher on the year. The recent slide in the value of the CHF will have been an important factor here. By contrast, domestic producer prices dipped 0.1 percent and now show a yearly decline of 0.5 percent.

Within the PPI, agriculture and forestry products dropped a monthly 1.3 percent as did consumer non-durables but intermediates were up 0.7 percent and energy jumped 1.3 percent. The core PPI fell 0.2 percent versus July and was 1.2 percent weaker than a year ago.

For the composite headline index, underlying prices were only unchanged on the month and down 0.5 percent on the year, matching their July decline. Domestically generated pipeline pressures remain very subdued and this will reinforce the SNB's preference for a weaker CHF and help to ensure a dovish statement at tomorrow's monetary policy update.

The producer price and import price index focuses on the actual prices of products on the market (transaction price) at the time of the order. The prices of domestic products are taken at the producer or factory level, excluding value added tax and consumption taxes. For imports, prices are collected at the Swiss border, without the value added tax, taxes on consumption and tariffs. Changes in the index provide a guide to inflation from the point of view of the product's producer/manufacturer

The PPI measures prices at the producer level before they are passed along to consumers. Since the producer price index measures prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months. Producer prices are more volatile than consumer prices. While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace. The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.